Part year Arizona resident; step-by-step not asking to allocate earned income

[RandyAZ]

TurboTax correctly includes a section in the interview to collect information on the "Arizona Portion" of each federal amount shown. My federal return has income ONLY from wages. However, the step-by-step screen provides only the option to specify the "Arizona Amount" for "State Income Tax Refunds"; the "Federal Amount" for this item is $0, and the "Arizona Amount" is also $0. There is no interview line item to specify the "Arizona Amount" for Wages. I can manually enter this amount in the form (Arizona 140PY line 15), but would prefer to specify it during the interview.

[DavidS127]

You aren't getting the same question to allocate wages to Arizona because TurboTax "believes" it has already classified the correct amount of W-2 wages as Arizona, based on the W-2 you entered.

[RandyAZ]

Thanks DavidS127 for the quick response!

Yes, I agree that TurboTax "believes" that it has already classified the correct amount of W-2 wages. However, I do not believe the classification is actually correct.

I earned income (wages) working in SC, while a resident of Arizona. As such, I believe that this portion of my earnings should be allocated as Arizona income. However, TurboTax allocates $0 to Arizona, and does not ask me to specify the actual value anywhere. (As I mentioned, I can manually enter this on the 140PY form.)

Was there some other portion of the interview/step-by-step that may have been answered incorrectly in order to cause TurboTax to believe that the SC wages do not need to be allocated to my resident state?

[DavidS127]

Check in the "My Info" section of TurboTax, to make sure you answered that you lived in Arizona all year, and also the separate question about if you earned income from another state.  You should end up with an Arizona resident tax return that taxes all your income but gives you a credit for taxes paid to South Carolina on the same dollars of income.

[RandyAZ]

Hi DavidS127,

I was a part-year resident of AZ for the first half of the year, and a part-year resident of CA for the second half of the year. I earned income in SC during the first half (while I was an AZ resident), and in CA during the second half (while I was a CA resident). I believe that the first half income (earned in SC while a AZ resident) should be allocated to AZ.

I reviewed the information in the "My Info" section of TurboTax, and it is correct. It shows that I was a resident of both AZ and CA, with the correct dates, and also captures that I earned income in an additional state (SC). 

Unfortunately, I cannot find any mechanism to have TurboTax ask about how to allocate the total wage income (earned in SC and CA) to my resident states (AZ and CA).

[DavidS127]

Have you prepared the SC nonresident tax return, and is it correctly reporting SC taxable income for the income earned in SC?

[RandyAZ]

Yes, I have completed the SC state tax return (SC1040, including non-resident form Schedule NR), and it shows the wage income earned in SC.

I have also completed the CA state tax return, and TurboTax correctly asked me to allocate the correct portion of total earned wages (sum of SC and CA earnings) to CA.

However, for the AZ state tax return, TurboTax is asking me to allocate "State Income Tax Refunds" (which I do not have), rather than income (which I do have). Still not sure why...

[JotikaT2]

Another entry you may want to double-check is your input in the wages.  Make sure the amounts entered under boxes 15-17 correctly reflect your earnings and withholdings within each state.

If you have entered the dates for your residency within each state, it should allow you to reflect your income earned within each state based upon your input in the federal section of the program.

[RandyAZ]

Thanks JotikaT2.

I confirmed that the W2 information for income earned in both SC and CA is correct. 

What is odd is that TurboTax is asking for income allocation for the CA state return (correct), but not the AZ state return (incorrect).

I will work on generating a simplified testcase that exhibits the error.

[KathrynG3]

California is a reverse credit state. California give you a credit for taxes paid to your resident state if it is taxed by both states. 

[RandyAZ]

I generated a simple TurboTax testcase with income earned in SC (while an AZ resident), and income earned in CA (while a CA resident). This mirrors my actual situation.

As with the actual return, TurboTax does not let me allocate any portion of my earned income to my AZ tax return.

Is it possible to share this testcase for further debugging?

[AmyC]

The issue has been resolved. Before you can e-file, you will need to delete the Arizona Form 140PY from your return to get the form to recalculate correctly. Please see the following link for the steps to remove this form from your return.

How to Delete  

Thank you for your offer to assist.

[RandyAZ]

Hi AmyC,

Thanks for the update.

I followed your directions to delete the AZ 140PY form, and revisit the AZ state tax return. Unfortunately, TurboTax still does not ask to allocate any income to the AZ return. I have confirmed this on both my actual and testcase returns, as well as on both the desktop and on-line versions of TurboTax.

I did not see any AZ form updates when I launched the desktop version. Does this mean that the resolution is not yet available?

[AmyC]

I went through AZ on my test case for you. I found the allocation screen. Perhaps you have something stuck in your computer. Try deleting the state again. Sometimes you have to delete it a few times to un-stick something. If there is still something wrong, you may want to contact a specialist that can work through that section of the return with you.

[RandyAZ]

Thank you AmyC! I appreciate that you took the time to create a testcase to help resolve my problem.

I did try deleting form 140PY a few times, but continued to have the problem (of not being asked to allocate any portion of earned income to AZ). I called the support number, eventually being transferred to a tax expert (CPA with 43 years of experience). He could not get the interview to ask about allocating income for the AZ return either. His answer was to play around with the state-specific addition and subtraction lines; as long as the total tax owed was correct, it was not important to allocate the income on the wage line. I believe that other users would not be aware of the need to manually adjust elsewhere in the AZ return, rather than the allocation page that you shared in your screenshot. Your testcase worked as I expected, and I am still wanting to use that solution.

Is it possible for you to use a simplified version (testcase) of my tax situation for your testing?

Single taxpayer

Resident of AZ from 1/1/19-7/31/19, resident of CA from 8/1/19-12/31/19

Earned income (W2) in SC (while AZ resident): $5000

Earned income (W2) in CA (while CA resident): $15000

Standard deduction for federal and all state returns

Expected result:

SC non-resident return, $5000 income, $0 total tax

AZ part-year resident return, $5000 income, $0 total tax, TurboTax DOES ask about allocating income

CA part-year resident return $15000 income, $75 total tax, TurboTax DOES ask about allocating income

Actual result:

SC non-resident return, $5000 income, $0 total tax

AZ part-year resident return, $0 income, $0 total tax, TurboTax DOES NOT ask about allocating income

CA part-year resident return $15000 income, $75 total tax, TurboTax DOES ask about allocating income